Insights from Investment Pros on Orcan and Another Key Trust to Consider

“Is Orcan Sufficient on Its Own?”

According to the Wealth Advisor’s ‘Investment Trust Fund Flows Report’ (May ’24), inflows into domestic equity investment trusts (excluding ETFs) reached ¥1.5379 trillion in April ’24, surpassing ¥1 trillion for the fourth consecutive month.

Among the top 25 funds in net inflows, 17 are international equity types, with the top performer being “eMAXIS Slim Global Equities (All Country)”—commonly known as Orcan—with inflows of ¥181.3 billion. Orcan has consistently led in net inflows across all funds for six consecutive months.

In this article, we explore whether investing solely in the popular Orcan is sufficient or if other considerations are necessary.

What exactly is Orcan as an investment trust?

Orcan, officially known as ‘eMAXIS Slim Global Equities (All Country),’ is a global equity index fund designed to mirror the performance of stock markets worldwide, including Japan.

It aims to track the MSCI All Country World Index (ACWI), which comprises large-cap stocks from 23 developed countries, 24 emerging markets, and approximately 3,000 companies globally. The fund covers approximately 85% of the world’s equity market capitalization.”

Orcan began operations on October 31, 2018, and as of the time of writing this article (May 23, 2024), it has been in operation for five and a half years. Its net assets total ¥3.4484 trillion [as of May 23, 2024], and it has shown a five-year return (annualized) of 19.66% [as of May 17, 2024], indicating steady accumulation of funds and consistent profitability from investments.

The key to its popularity lies in its cost structure, with a management fee of only 0.05775% per annum, which is among the lowest available. The total expense ratio that investors effectively bear (from April 26, 2022, to April 25, 2023) has been maintained at a low level of 0.15%. It’s worth noting that the management fee was reduced to 0.05775% starting from September 8, 2023.

Furthermore, Orcan also incorporates a mechanism known as beneficiary rebate-type trust fee, where the effective trust fee rate borne by investors decreases gradually as the total net assets of the fund increase.

By the way, the MSCI ACWI index, which Orcan tracks, allocates its assets across the following regions:

Since it’s referred to as global equities, some may have assumed it evenly distributes investments across the world’s equities. However, as depicted in the graph, approximately 60% is attributed to the United States alone. Many may be surprised by the heavy concentration in U.S. stocks, so it’s important to remember this fact.

The reason for the significant allocation to U.S. stocks is due to the United States being the center of the global economy and having experienced long-term growth. While there’s no guarantee that the U.S. will continue to grow indefinitely, Orcan includes approximately 40% in other developed and emerging markets besides the U.S., aiming to diversify and potentially enhance investment effectiveness rather than concentrating solely on the U.S.

However, it is indeed a fact that the proportion of U.S. stocks is significant.

Among our readers, there may be individuals who are considering risk hedging.